Price Paid for Shopping Centre

In 2016, Surrey Heath Borough Council bought the shopping centre in Camberley now known as The Square. Claims have been made that the Council has “lost money” on this purchase.

The market price for shopping centres has fallen in value since 2016, for example [1]:

Shopping Centre Change in estimated sale value £ Change in estimated sale value %
Bluewater £2bn to £1bn -50%
Warrington Golden Square £140m to £29m -80%
Crawley County Mall £192m to £32m -84%
East Kilbride £178m to £25m -86%

The fall in value is not a case of paying an excessive price for these properties. An independent review by Avison Young concluded that the Council ‘had not paid over the odds’. The full review can be viewed here (Item 7/PF) [2].

Like any investment, any ‘gain’ or ‘loss’ exists purely on paper unless the asset is sold. Any paper ‘loss’ or ‘gain’ on any asset has zero impact on the day-to-day finances of the Council unless it is sold.

Income from Property Investments

What does impact on the day-to-day finances is the net revenue that the Council’s properties make.

The Winter 2023 Heathscene magazine describes how net income from the council’s property portfolio, supported by a strong occupancy rate at The Square Shopping Centre in Camberley, is used to pay £ms towards services accross the Borough, including Meals at Home and park maintenance.

A fuller list of those services is here.

Interest Rates

Anyone borrowing money on a mortgage knows there is always a choice to make whether to fix for the short-term or for the long-term. The security of a fixed long-term rate often has a price premium, so you can save money by staying with short-term loans, but if interest rates rise quickly you can end up paying more.

The Shopping Centre was originally financed using short-term loans, sometimes as low as 0.08%. These were much cheaper than the long-term loans available at the time of 2.19%. The resultant savings were set aside in a ‘rainy day’ contingency fund for future interest rate fluctuations, called the “Interest Equalisation Reserve”, which had built up to £7.3m by March 2023[3].

As interest rates rose, some of the debt was locked into long-term loans. In 2021 an additional £50m was moved to long-term (40 years) fixed-rate @2.9%.

As at 30 June 2023, £100m of the Council’s borrowings were fixed at an average of 2.7% over 15-50 years, and there is net £67m in short-term loans, at an average rate of 3.3%. If you want to see the breakdown, you can see the relevant report here (page 8).

£2.0m of the ‘rainy day’ Interest Equalisation Fund  was used to balance the 2023-24 Budget, leaving £5.3m. The Lib Dems have wrongly claimed that if this account is depleted to zero by being used in the future, this means the Council will be ‘bankrupt’.

What this would really mean is that the Council had paid what it expected to pay originally, and the savings made when interest rates were low had been used, as intended, when interest rates were higher.

How anyone can conclude that this would equate to ‘bankruptcy’ is hard to understand. SHBC has £42m of additional reserves (see below).

Financial Status & Reserves

The claims that the Council is near bankruptcy are false. Surrey Heath Borough Council has the 2nd largest ratio of Reserves to Income in the South East, according to the Chartered Institute of Public Finance and Accountancy (CIPFA) website: :

When the 2023-24 budget was signed off in February 2023, the Council’s officers described the Council as being in robust financial health with healthy reserves.

Official Council Messages

The only messages from official Council channels flatly contradict the scaremongering about ‘bankruptcy’.

Evidence given to the Levelling Up, Housing and Communities Committee (a Select Committee) in the House of Commons on Monday 13th November by the Council’s highly respected Section 151 Officer.

A Section 151 Officer has a statutory duty under Section 151 of the Local Government Act 1972, to ensure that there are proper arrangements in place to administer the Council’s financial affairs.

His evidence is now on the public record – you can read the full transcript here (Surrey Heath evidence starts at Q96 on p25) and watch the video here. Here are some extracts:

Q97 “Is your council at risk of imminent financial distress and, if so, why is that the case?”

s151 Officer: “: My council is not in immediate financial distress. Like many other councils, it is predicting a use of reserves over the medium-term financial period, and the burn rate of those reserves is probably unsustainable into the medium to long-term future.”

Q100 “Briefly—next year, use of reserves, further cuts?”

s151 Officer:  “We have a challenging budget process, which we are entering into right now. There is a budgetary gap that we have to meet through, potentially, cuts to discretionary services or efficiencies. Over the past two or two-and-a-half years, we have embarked on a number of efficiency measures, where we have taken costs out of the organisation without cutting services to the residents and businesses of Surrey Heath. It is likely that, where we are, we will now have to look at some of the discretionary services.

Over the past, we have also built up levels of earmarked reserves for just such a case as we are starting to see with some of the higher interest rates coming through. We are using those reserves, and we plan to draw them down to smooth the impact of the budgetary gap being eradicated over the four years. This year, we have a balanced budget by use of earmarked, and next year we will have the same situation. We have sufficient reserves to take us through to the end of the four-year period, but it is challenging and some difficult decisions will have to be taken.”

Trefor Hogg has also posted an excellent summary here.

The Future

One advantage of buying a property with a loan, is that after paying off the loan, you own it.

With prudent financial management, within two generations, SHBC will own all its properties, loan-free, and they can be expected to generate enough income to reduce the SHBC part of your Council Tax bill by more than 2/3rds.


[1] Montagu Evans report to SHBC 2022.

[2] Avison Young report to SHBC 2020 link.

[3] Medium Term Financial Strategy 2023/24 to 2026/27 link para 8.6.